By Connor Campbell, Financial Analyst, Spreadex
Can Hikma Pharmaceuticals (LON:HIK) produce some much needed market medicine with next Thursday’s interim update?
The London-based pharmaceutical firm had a pretty fantastic start to 2017. Approval for a generic Sodium Oxybate oral solution in January, an exclusive Easyhaler licensing and distribution agreement with Finnish drugmaker Orion in February and the US launch of anti-depressant Pristiq in March helped push the higher leading into its full year results.
On 15th March Hikma then spiked 5.5% to a £23-plus 7 month peak after revealing a 35% jump in annual sales to $2 billion. Pre-tax profits, on the other hand, fell by around a third to $210 million following an increase in costs, R&D spending and M&A-related charges. Perhaps most importantly the company announced it was preparing to launch its own version of GlaxoSmithKline's (LON:GSK) superstar asthma drug Advair, a product forecast to account for 15% of the $800 million in revenue expected from its generic division in 2017.
Hikma’s high wasn’t to last long however, as just a day after its annual results JP Morgan downgraded the stock to ‘neutral’ after arguing that the Advair-rival would only provide a short term earnings boost due to a combination of increased competition and generics pricing pressures. This effectively wiped out the growth seen on the day of the full year update, and sparked a long, long decline that Hikma is yet to recover from.
By mid-April the stock was below £19, and though it did bounce to £20 in early May, an update on the 11th of that month soon sent it back to the doghouse. In a massive blow to its plans, the FDA failed to approve its second asthma drug application, the regulator pointing to ‘major’ issues with the application as reason for the rejection.
With chances of approval in 2017 now slim the stock plunged 7.5% on the day of the announcement and then kept falling. A 19th May statement failed to help matters after the company was forced to cut its full year revenue targets from $2.2 billion to a range of $2 billion to $2.1 billion in light of the asthma drug update, with its generics division now expected to generate $670 million in sales.
Since then it’s only been more bad news, as sterling’s recovery against the dollar helped send the multinational company lower. Most recently a note from Morgan Stanley (NYSE:MS), claiming that analysts’ forecasts for the firm hadn’t been sufficiently reined in, lopped off another chunk of value, leaving Hikma Pharmaceuticals at a current trading price, and 3 and a half year low, of £13.10.
In terms of next week’s half year results, the market will be desperate for an update on the asthma drug situation (even if that perhaps seems unlikely). As for hard figures, Hikma is expected to post an 8% increase in revenue to $952.5 million, something which may or may not reassure investors.
Hikma Pharmaceuticals PLC has a consensus rating of ‘Hold’ with an average target price of £19.36.
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